Boomers, don’t be stupid with your nest egg

By Amy Hoak

Financial reasoning peaks at 53, then declines sharply. And it really hits a freefall once you’re older than 70.

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You’ve earned it, now protect that nest egg.

So says Lewis Mandell, professor emeritus of finance and managerial economics at the University at Buffalo School of Management and the author of the book, “What to Do When I Get Stupid: A Radically Safe Approach to a Difficult Financial Era,” which critics and consumer advocates have called a warning to the baby boom generation. Mandell bases his conclusions about reasoning on a 2009 report titled “The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation,” prepared for the Brookings Papers on Economic Activity; in it, scholars measured peak performance of 10 financial tasks, from getting the best deals on home-equity loans and lines to not paying late fees on credit cards.

Baby boomers need to protect their assets from this decline in financial reasoning, Mandell says. But here’s perhaps the bigger problem: A person’s financial confidence increases as he or she gets older, he adds. And that leaves a person vulnerable to sales pitches and investments that might not be in his or her best interests. See the full news release on the book.

But Tom Sedoric, an adviser with Wells Fargo Advisors in Portsmouth, N.H., argues that a good number of people heading up in age do know their limits—and aren’t afraid to hand over the reins to someone else.

“As people get to age 70 or thereabouts, even world-renowned economists, they don’t want to run their own money anymore,” he said. In some cases, they could have a lack of interest in the task; in other cases, they’d rather someone with more current knowledge of the markets assist them as they age, he said. If they’re wise, they also know they’re vulnerable—to scams, to intense marketing pushes from charities or casinos, he said.

They’re also vulnerable to their own emotions. As a 92-year-old mentor of Sedoric’s once told him, “One of the hardest things about getting old is feeling unimportant.” That feeling can cause people to make unwise purchases as an attempt to make themselves feel better, Sedoric said.

How to prepare for this decline in financial judgment? For one, Mandell advocates retirees have no mortgage: “A fully paid, age-in-place home may be the single best investment we can make,” he said in the news release. “By staying at home, we can keep ourselves or our loved ones out of expensive nursing homes, which can quickly deplete our assets.” He also says people should secure lifelong income before their financial reasoning declines; he recommends a single-premium immediate fixed annuity.

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Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.